On a call with a new client reviewing his current planning, we quickly realized that he had set up two revocable trusts and done a lot of paperwork, but nothing was transferred outside of his taxable estate.
I suggested that he look into gifting his assets out of his estate into irrevocable trusts before the current estate tax exemption provisions sunset on Dec. 31 2025.
We discussed the pros and cons of doing this planning with his estate attorney, mapped out options and got to work.
He called me back once the benefits of this gifting sunk in and said:
“Why has nobody ever explained this to me before? This is something I have to do to save millions of dollars, but nobody brought it up!”
So, I realized that I should write a very brief and simple primer on the concept of gifting, especially before the 2025 sunset.
This is not tax advice, please speak to a qualified (top-tier) advanced estate planning attorney.
What is estate tax planning:
The estate tax exemption is currently $12.92M per person, or $25.84M per couple.
That is the amount that you can gift without paying any transfer taxes (while alive, 40% of the value of assets) or estate tax (when you pass away- 40% for your kids, and another 40% generation-skipping tax on top of that to your grandkids).
On 1/1/2026, that amount will drop to about 50% of what it is today, or $6.46M per person/$12.92M per couple.
So for example: a couple has a taxable estate of $25M currently.
Right now they can move all of your assets into irrevocable trusts, and if structured correctly, retain access to and control of those assets.
If they simply do nothing, the estate tax exemption will decrease to approximately $6.46M per person, or $12.92M per couple. (These numbers change based on inflation rates, so it is hard to be absolutely precise, but it should be around 50% of what they are today)
This means that if the couple does nothing and dies on 1/1/26, the couple will be taxed up to 40% of the value of the assets in excess of $12.92M, meaning a $4.832M tax bill that will grow as the assets grow.
If their assets grow, they will be taxed more accordingly.
Another interesting technique is to highlight a lack of control and marketability of one’s assets while gifting.
Think about shares in a private LLC where one is not the controlling member. One would need to get approval from the board for a sale of these shares. If ones property is in a similar structure, and those shares are gifted into irrevocable trusts, the IRS often gives a discount of around 35%.
This would allow a family who had the right structure to move $39.75M of assets per couple out of their estate.
For a family with an estate of $39.75M and more, a failure to do advanced planning before 1/1/2026 may result in a >$10M estate tax burden and growing.
Worth exploring!
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